Your Tax Return is Due but You Forgot to Make Your S or C Corp Election. Now What?

The tax return doors have burst wide open, with folks rushing to catch the Sept 15th deadline for partnerships and S Corp returns (and C Corp returns, if you have a 3/15 year-end).

This is also the time of year that many new business owners start to get letters from the IRS saying (more or less) “We’ve received your return, but have no record of your company making an S Corporation or a C Corporation election. Please provide us with proof of filing so we can accept your return.” And, you look through your records, only to learn that the election was either never prepared, or never filed.

To elect to be taxed as an S Corporation, LLCs and Corporations are supposed to file an IRS Form 2553 by March 15th, or within 75 days of being incorporated. It’s a simple, 3-page form that can be faxed in or mailed in. If you mail it, send it certified, return receipt, and hang onto the receipt. If you fax it, make sure you have a fax transmission form confirming all the pages went through, and staple that confirmation to your original.

For those LLCs who want to elect C Corporation status, it’s a little different. You need to file an IRS Form 8832 within 75 days of formation, or the first of the year. Unfortunately Form 8832s are always mailed in – there’s no fax or online method to get them taken care of at this time.

Either way, if you make the filing within the specified time period, approval is automatic and life is good.

But you didn’t file yours. Now what?

Fortunately the IRS knows that the first few years of business are a little chaotic where the paperwork is concerned. They’ve got a few procedures in place that will work, 99% of the time, if you do certain things.

For example, if you’re in your first year of business, either as a corporation or an LLC, and you want to file an S Corp return, you can file the S Corp election (IRS Form 2553) with your tax return. On the top of each page, you can write “Filed Pursuant to Rev Proc 2003-43”. At the bottom of the first page, you’ll find some space to write down why the filing is late. “Because I forgot to do it” is a perfectly acceptable excuse, along with “I thought my CPA/lawyer/secretary/assistant/etc. did it,” “the dog ate it,” “we did file it – in a folder in the filing cabinet,” and so on. (Believe it or not, those are all on record as reasonable excuses with the IRS).

Even if your business is more than a year old, you can still use this method as long as you haven’t yet filed the business’s first tax return. So if your business has sat idle since formation, and you’re just now getting it going, send the 2553 in along with your tax return.

You don’t have to wait for the tax return, either. You can fax in a 2553 at any time during the year, following the “Filed Pursuant to Rev Proc 2003-43” procedure.

If you’re trying to make a C Corporation election for your LLC, again, the IRS has a way to get it done. The steps here are fairly similar, but the Revenue Procedure code is a little different.

For newly-formed businesses, filing their first returns, prepare the IRS Form 8832 with the statement “Filed Pursuant to Rev Proc 2002-59” across the top. Attach a separate written statement, on the business letterhead, explaining why it was late. Filing After the First Year

After the first year is over, and you’ve got at least one tax return already filed, things change. It gets harder, although that’s not to say it can’t be done. But the procedure is more complicated, and, if you’re wanting C Corporation status, you may have to pay a fee to a special Letter Ruling done. This is an area to talk with your tax preparer about – chances are you’re going to need their help.

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